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As a timely reminder to those of us who work with public companies, the SEC just charged an investor relations person at a public company with selective disclosure of what was material non-public information.

Those of us who’ve worked with public companies for many years recall the outrageous abuses which prompted Reg FD in order to promote full and fair disclosure of material financial information.

Even after Reg FD, however, occasionally company executives forget or get sloppy about following the disclosure rules strictly.

This case, then, is a valuable reminder to us all. Please click here to take you to the article by Holland & Knight which describes the circumstances of the case.

The new JOBS Act, intended to make it easier for smaller companies to raise capital, was signed into law by the President on April 5th.

First, let me say that I welcome the reduction in the regulatory burden on smaller companies. I hope this spirit of deregulation will be extended to existing small cap public companies which continue to operate under the old burdens.

However, some needed changes to encourage capital formation by smaller companies aren’t as easily handled through legislation. For example, thin liquidity in many small cap stocks has several causes and would require several fixes. Lack of liquidity, therefore, will likely continue to plague smaller cap stocks.

Also, we can’t legislate good judgment. Even under the former, so-called stricter rules, investors shoveled money into Chinese stocks, many of which proved to be unwise investments. The new JOBS Act places even greater responsibility on investors to exert good judgment.

Experience tells me that companies considering raising capital should take advantage of these relaxed rules as soon as possible before some visible blow-ups or disasters trigger re-tightening of the rules.

The following links provide helpful summaries and analyses of the JOBS Act. Thank you.

On March 27, 2012, the U.S. House of Representatives passed the Jumpstart Our Business Startups Act (the JOBS Act), following with strong bipartisan support the U.S. Senate’s March 22, 2012, passage of the JOBS Act. It is widely expected that President Obama will sign the act into law later this week.

The JOBS Act is intended to stimulate job creation and economic growth by improving access to the capital markets for emerging growth companies.

The JOBS Act contains a number of provisions designed to ease capital-raising for private companies, including:

Allows equity-based crowdfunding

“Crowdfunding” activities are permitted, so that issuers may raise up to $1 million from a large pool of small investors, subject to limitations based on investor income levels. Issuers will be allowed to rely on investor certifications of income.

An investor with an annual income or net worth of less than $100,000 may invest no more than the greater of $2,000 or 5% of his or her annual income or net worth in any 12‑month period in a given company, and an investor with an annual income or net worth of more than $100,000 may invest up to 10% of his or her annual income or net worth annually (with a cap of $100,000 per investor, per company annually).

Companies relying on these provisions must satisfy the following financial statement requirements:

Raising amounts up to $100,000 annually requires the certification of the principal financial officer that the financial statements are true and correct;

Amounts between $100,000 and $500,000 annually will require review by an independent public accountant; and

Offerings will have to be conducted through a broker or a “funding portal.”

Issuers may not advertise the terms of the offering other than to direct investors, brokers or funding portals.

Issuers will be required to file with the SEC and provide to investors and intermediaries a range of information regarding the offering and the issuer (at least 21 days prior to the first sale to any investor and not less than annually thereafter).

Securities issued will be “covered securities” and exempt from state Blue-Sky registration.

Securities issued will be subject to transfer restrictions (with limited exceptions) for one year.

Removes the prohibitions on general solicitation or general advertising when conducting private placements under Rule 506 of Regulation D

The SEC must remove the prohibition on general solicitation or general advertising when conducting private placements under Rule 506 of Regulation D, thus allowing companies to advertise broadly when conducting private placements.

Increases threshold for Regulation A “mini public offerings”

The JOBS Act raises the limit for offerings under Regulation A (the little used small offerings exemption) from $5 million to $50 million and exempts Reg A offerings from state securities laws, so long as the securities are:

Offered or sold over a national securities exchange, or

Sold to “qualified purchasers” – a term that will need to be defined by SEC rulemaking.

The revised Regulation A will require issuers to file audited financial statements annually with the SEC, and the JOBS Act directs the SEC to develop rules relating to periodic disclosure by Regulation A issuers and to develop rules requiring an issuer to file and distribute to prospective investors an offering statement containing specified disclosures.

Initial Public Offering “On-Ramp”

The JOBS Act creates a category of issuer called an “emerging growth company,” which is defined as a company with under $1 billion in annual revenue.

A company will remain an emerging growth company until the earliest of:

Five years after the company’s initial public offering (IPO);

When the company becomes a “large accelerated filer,” defined as an issuer with in excess of $700 million in unaffiliated public float;

When the company has issued $1.0 billion or more of non-convertible debt in the previous three years, or

When the company reaches $1 billion or more in annual revenue.

Under the JOBS Act, emerging growth companies:

Will be permitted to include only two years of audited financial statements (and two years of Management Discussion & Analysis and selected financial information) in its IPO registration statement, and future filings would not need to go back any earlier

Will not be required to provide an auditor attestation of management’s assessment of internal controls for financial reporting created under Sarbanes Oxley

Will be exempt from certain accounting requirements, including the audit firm rotation and the supplemental information by audit firm requirements

Will be exempt from shareholder approval requirements of executive compensation (“Say on Pay”)

Research reports relating to emerging growth companies and research communications with investors and management will be made easier:

Investment banks will be permitted to publish research during the pendency of a public offering, even if they are the company’s underwriters.

The research analyst conflict of interest rules related to marketing of IPOs and “three-way” communication between research, investment banking and management will not apply.

There will be no post pricing quiet period or booster shot restrictions on research reports or other communications.

Emerging growth companies and their authorized representatives will be permitted to communicate orally or in writing with Qualified Institutional Buyers and Institutional Accredited Investors to determine interest in a potential offering whether before or after the filing of a registration statement for the offering.

The SEC will permit IPO filings by emerging growth companies to be made confidentially.

A company may only qualify as an emerging growth company if its first sale of common equity pursuant to an effective registration statement occurred after December 8, 2011.

Increases the number of record shareholders that require an issuer to become an SEC-reporting company

The maximum number of shareholders of record that a private company can have before it must register with the SEC as a public company has been increased from 500 to 2,000, so long as fewer than 500 are non-accredited investors, and excluding shareholders who received employee compensation plan securities and “crowdfunding” investors.

When will these changes take effect?

The timing relating to these provisions varies:

Changes to the number of shareholders of record requiring an issuer to become an SEC reporting company will be effective upon enactment;

The SEC must make the changes to Rule 506 regarding general solicitation within 90 days;

The SEC must enact rules facilitating the crowdsourcing provisions within 270 days; and

Changes to Regulation A will require SEC rulemaking, but no time limit is set by the JOBS Act.

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Those of us who’ve been in the financial markets for a number of years have seen Wall Street prices rise and fall periodically. I can’t predict exactly when they’ll rise or fall but I’m certain they will.

Therefore, when stock prices fall across the board, I don’t panic. I know it’s a cycle; prices will rise again eventually.

Also, experience has taught me that when stock prices fall, public companies should once again pull out and dust off for consideration certain time tested corporate actions.

It’s kind of like pulling out the snow gear this time of year. It’s a ritual.

What kind of corporate actions are appropriate to consider when stock prices drop?

My point is that public companies should consider a buyback program and, if appropriate, follow through.

Next, not to be paranoid, but public companies should review their takeover defenses.

Particularly now when big companies are awash in cash and their organic growth has slowed, big companies may see acquisitions as a smart means to get growth by putting their cash to work. Heaven knows, cash earns nothing sitting in the bank.

There’re a number of common takeover defenses, some which vary depending upon the company’s state of incorporation. Common defenses include poison pills, staggered boards, shareholder vote submission and vote threshold provisions.

What I’m recommending here is that a company review with its Board, attorneys, investment bankers and IR professionals just what’s appropriate for the company given its circumstances.

Third, be proactive about M&A.

Rather than sit back and wait for a suitor to call, go ahead, evaluate your competition and all the adjacent players, those companies which are not direct competitors but are nearby. Make sure your analysis includes all the global players too. It’s a very small world now.

For companies operating in several businesses, you really must evaluate each business independently. Who knows, this might even lead to a split-off like that of ITT and Sara Lee.

The goal of this analysis is to determine where there are good fits with your company, where one plus one equals three or more. Even if you don’t immediately act on the analysis, you’re better off knowing the landscape if a suitor calls.

While you’re looking at alternatives, you should consider whether a “go private” or “go dark” transaction makes sense for your company. Unfortunately, for many companies, the cost of being public outweighs the benefits.

I can help your company to consider all these actions in a timely and cost efficient manner .